The great bulk of the economic commentaries you read in the papers are focused on the short run - the effects of the "fiscal cliff" on US recovery, the stresses on the euro, Japan's latest attempt to break out of deflation. This focus is understandable, since one global depression can ruin your whole day. However, what do we know about the prospects for long-run prosperity? The answer is: less than we think.
The long-term projections produced by official agencies, such as the Congressional Budget Office, generally make two big assumptions. One is that economic growth over the next few decades will resemble growth over the past few decades. In particular, productivity - the key driver of growth - is projected to rise at a rate not too different from its average growth since the 1970s. On the other side, however, these projections generally assume that income inequality, which soared over the past three decades, will increase only modestly looking forward.
Given how little we know about long-run growth, simply assuming that the future will resemble the past is a natural guess. On the other hand, if income inequality continues to soar, we're looking at a dystopian, class-warfare future - not the kind of thing government agencies want to contemplate.
Yet this conventional wisdom is very likely to be wrong.
Professor Robert Gordon, an economist at Northwestern University, created a stir by arguing that economic growth is likely to slow sharply - that the age of growth that began in the 18th century may well be drawing to an end.
Gordon says long-term economic growth hasn't been a steady process; it has been driven by several industrial revolutions. The first, based largely on the steam engine, drove growth in the late-18th and early-19th centuries. The second, made possible in large part by the application of science to technologies such as electrification, internal combustion and chemical engineering, began circa 1870 and drove growth into the 1960s. The third, based around information technology, defines our current era.
As Gordon notes, the pay-offs to the third industrial revolution are far smaller than from the second. Electrification was a bigger deal than the internet.
The case against Gordon's techno-pessimism rests largely on the assertion that the big pay-off to IT, which is just getting started, will come from the rise of smart machines.
The field of artificial intelligence has for decades been a frustrating underachiever, as it proved incredibly hard for computers to do things every human being finds easy. Lately, however, the barriers seem to have fallen - not because we've learned to replicate human understanding, but because computers can now yield seemingly intelligent results by searching for patterns in huge databases.
True, speech recognition is still imperfect, but it's a lot better than it was a few years ago. Object recognition is further behind. It's still a source of excitement that a computer network fed images from YouTube instantly learned to identify cats. But it's not a large step from there to economically important applications.
So machines may soon perform tasks that now require a lot of human labour. This will mean rapid productivity growth and, therefore, high overall economic growth.
But who will benefit from that growth? It's all too easy to make the case that most Americans will be left behind, because smart machines will end up devaluing the contribution of workers, including highly skilled workers whose skills suddenly become redundant. The point is that there's good reason to believe that the conventional wisdom embodied in long-run budget projections is all wrong.
What, then, are the implications of this alternative vision for policy? Well, I'll have to address that topic later.
The New York Times